Use the table for the question(s) below.
The following table summarises prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
$\begin{array} { l c c c c c }
\hline \text { Maturity (years) } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { Price (per \$100 face value) } & 94.52 & 89.68 & 85.40 & 81.65 & 78.35 \
\hline
\end{array}$
-The yield to maturity for the two-year zero-coupon bond is closest to?

Question

Use the table for the question(s) below.
The following table summarises prices of various default-free zero-coupon bonds (expressed as a percentage of face value):
$\begin{array} { l c c c c c } 
\hline \text { Maturity (years) } & \mathbf { 1 } & \mathbf { 2 } & \mathbf { 3 } & \mathbf { 4 } & \mathbf { 5 } \
\hline \text { Price (per \$100 face value) } & 94.52 & 89.68 & 85.40 & 81.65 & 78.35 \
\hline
\end{array}$
-The yield to maturity for the two-year zero-coupon bond is closest to?

Quizplus · Accepted Answer

The yield to maturity for a zero-coupon bond is the annual rate of return that equates the present value of the bond's future cash flows to its current price. In this case, the present value of the bond's future cash flow is $100, and its current price is 89.68. Using a financial calculator, we can solve for the yield to maturity, which is approximately 5.6%.

Use the Table for the Question(s) Below -The Yield to Maturity for the Two-Year Zero-Coupon Bond Is